Centurion has found a niche outside of urban centres where many are flocking in search of affordable housing
When looking at urban centres in Canada, there is starting to be a recognition that they are chronically short on rental housing. While the market has been tight for a while, more recently, people are starting to take notice. Yet, with no change on the horizon, it is forcing those in search of housing to turn to areas outside the cities for affordable housing. At the same time, it has developers looking to that same area for opportunities to be profitable.
Greg Romundt, president and CEO, Centurion Asset Management Inc., (“Centurion”) believes that that issue will continue to drive the core of their business – the multi-family industry. “In Ontario and the greater Vancouver area, where we are focused, new development opportunities are attractive because developments we looked at years ago are now starting to make sense. The rents were not high enough then to justify the development. Now, rents have moved so far that purpose-built rentals make sense.”
One area Romundt clearly sees this is in Vancouver. In addition to being very expensive, it is also one of the hardest places to get anything built because the city is trying to implement affordability components. “There is not enough housing in Vancouver itself and people who immigrate still want to go there. People are going to the suburbs or ex-urban areas. With Vancouver, that means areas like Victoria, Kelowna, Surrey, and Burnaby. We are seeing a lot of rental developments there and we have been active on development and buying new rental products. People are going there because product is available to rent, it is affordable and developers can build and buy it profitably. I think it is a great success story of what is possible, but also a failure because you would think this development would get done in Vancouver where it is needed. However, people need to leave to find housing, so it is a success inside a larger failure.”
Toronto is another area that Centurion has found opportunities outside of the city itself. “Toronto is having the same issue. You cannot afford to buy a property in Toronto and compete with a condo developer and build something profitably,” adds Romundt. “What we are seeing is stuff happening in the suburbs. We believe that will continue to play itself out. As a result, we are positioning ourselves outside these cores because that is where people are being forced to go.”
While Centurion is seeing opportunities outside of the major cities in those areas, they do see other opportunities around the country such as Manitoba and now Alberta, with the oil crisis cooling down.
Yet, the philosophy for Centurion goes back to their belief in finding the best relative value. “What we are always trying to find is where to invest our next dollar. It is not always about the total return; we think about capitalization rate and return. All real estate is local, which means there are a lot of people only focused on Toronto and they always will be. An opportunity in Cambridge is not for them. What that presents is some markets get overpriced and some underpriced. I think one of our jobs is to find the best value. A smart investor is always looking for where they will get the best bang for their buck.”
Getting the most out of their money is what caused Centurion to look at areas outside of the centres. Now, with things trending in that direction, Romundt feels that trend will continue. “I do think there will continue to be a drive to the suburbs. We were probably early, but still not too late. When you think about the number of people who immigrate each year, and the fact that we are not producing the number of houses needed, there will be an opportunity. It is not like the builders are sitting on their hands either. They could build more if they did not have to spend all their time in the planning approval stages. The reality is, there are two grand impediments: government charges and levies, and planning approvals take so long cost a lot and increase risk.”
Centurion offers three products that look to give investors exposure to this opportunity. Their flagship is Centurion Apartment Real Estate Investment Trust, but they also have Centurion Real Estate Opportunities Trust, and a private lending fund that does real estate and other corporate lending.
The advantages, for Romundt, start with why investors use their funds. “I think the majority of investors are coming to us for capital preservation purposes. They like that we are doing things to keep the money we have. Then, we aim to make a little cashflow, grow capital, and to the extent you can, be tax efficient. Those are the desires of our investors.”
He added that the advantages with apartments and mortgages are they tend to be assets that do not move. Centurion investors tend to be conservative. For them, they understand and are comfortable with the strategies and know they can usually depend on the monthly income from those types of investments. That is why for long-term investors, the strategies in their funds make sense.
As to why advisors should include these types of funds in their portfolios, Romundt says it all comes down to diversification. “Everyone talks about diversification; certainly when you think of stocks and bonds, what do people traditionally go in to. So when they come to us to talk diversification what do they mean? They are talking about diversification away from stocks and bonds. Alternatives have gained a lot of interest in the last couple years. If you look at the track record, real estate has been a consistent performer. In our subclass, being primarily multi-family, people like that because everyone needs to live somewhere. Given where interest rates are, real estate has a good track record of not only providing consistent income and decent cashflow yield, but it is tax efficient. The profile of real estate tends to protect capital and appreciate over time because it is linked to inflation, so it has attractive characteristics for investors.”
